Retrovirus is frequently used in the genetic modification of mammalian cells and the establishment of induced pluripotent stem cells (iPSCs) via cell reprogramming. Vector-induced genotoxicity could induce profound effect on the physiology and function of these stem cells and their differentiated progeny. We analyzed retrovirus-induced genotoxicity in somatic cell Jurkat and two iPSC lines. In Jurkat cells, retrovirus frequently activated host gene expression and gene activation was not dependent on the distance between the integration site and the transcription start site of the host gene. In contrast, retrovirus frequently down-regulated host gene expression in iPSCs, possibly due to the action of chromatin silencing that spreads from the provirus to the nearby host gene promoter. Our data raises the issue that some of the phenotypic variability observed among iPSC clones derived from the same parental cell line may be caused by retrovirus-induced gene expression changes rather than by the reprogramming process itself. It also underscores the importance of characterizing retrovirus integration and carrying out risk assessment of iPSCs before they can be applied in basic research and clinics.